Even a veteran Silicon Valley investor can’t make the numbers behind venture capital add up.
Sequoia Capital partner and former PayPal exec, Roelof Botha, appeared on two podcasts over the past week to share a contrarian take on the VC industry — one shaped by more than two decades of investing.
“I think there’s a huge problem with the venture industry. There’s too much money,” Botha said on a recent episode of the “All-In” podcast. “In my opinion, investing in venture is a return-free risk.”
Botha said that venture capital firms invest over $150 billion in companies each year. Yet, even under what he called “reasonable assumptions for return,” the math still doesn’t seem right to him.
He pointed to Figma, which had one of the hottest IPOs of the year, debuting at a near $20 billion valuation. “You’d need 40 Figmas a year for the industry to make the returns work,” he said.
He reiterated his point this week on the “Uncapped with Jack Altman” podcast. “I don’t think venture is an asset class,” he said. “It doesn’t support the numbers.”
He said that, over the last 20 to 30 years, there have only been an average of 20 companies a year that have ended up making exits of $1 billion or more.
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Investors — and startup founders — may be too often pursuing quantity over quality, he said.
“There’s a lot more talent than really interesting ideas, or interesting companies to build,” he said. “I think we’re spreading a lot of that talent thin right now.”
Venture capital has had a mostly rough year so far, driven by uncertainty in the economy and markets. Exciting IPOs are few and far between compared to the salad days of 2021.
Figma was one bright spot, as was a handful of major deals, mostly related to AI, that gave some investors a shot at beating the odds.
In March, Google announced that it was buying security startup Wiz for $32 billion in cash, for instance. OpenAI raised another $40 billion round. Anthropic had two funding rounds for a total of $4.5 billion.
Sequoia Capital did not immediately respond to a request for comment from Business Insider.
